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Fairfax (NYSE: FFH | Quote | Chart | News | PowerRating) previously disclosed that it had reduced equity portfolio hedging from 100% to 65%, and was considering removing the hedges in its equity portfolio entirely. ?That day has come," Prem Watsa, the chairman and chief executive officer of Fairfax, said in a statement.
Watsa said that the company decided, given the unprecedented decline of the equity markets, to promptly inform shareholders about this decision.
?While we believe the recession may be long and deep, we also believe that stock prices may have already discounted the worst of the economic decline. As value investors, we are finding an incredible number of investment opportunities across the world. That said, in the short term, we recognize that stock markets can continue to fall significantly,? Watsa said.
Approximately 73% of Fairfax?s investment portfolio is in treasury bills and government bonds, and it has about $9.7 billion notional amount in credit default swaps.
Odyssey Re (NYSE: ORH | Quote | Chart | News | PowerRating) also recently disclosed that it had reduced the notional value of its equity portfolio hedge from approximately $1 billion to about $785 million as of Oct. 31. Like Fairfax, Odyssey Re continues to hold about 70% of its investment portfolio in treasury bills and government bonds.
Odyssey Re is a global underwriter of property/casualty treaty and facultative reinsurance, as well as specialty insurance. Through Sept. 30, the reinsurer reported net income of $441 million despite challenging underwriting and capital market conditions.
According to A.M. Best Co., the group?s astute investment strategy, which is managed by Hamblin Watsa Investment Council, contributed significantly to earnings through nine months of 2008, primarily through realized gains on credit default swaps and equity total return swaps, which have provided Odyssey Re with economic hedges in recent challenging economic times.
Moreover, Odyssey Re?s total investments and cash holdings of approximately $8 billion include $2.5 billion of longer-term U.S. treasury securities and more than $2 billion of cash and cash equivalents with approximately 91% of its fixed income holdings rated ?AAA? or better, A.M. Best said in statement affirming the company?s Best?s Financial Strength Rating of A (Excellent).
As of Sept. 30, Fairfax owned 70.6% ownership in Odyssey Re. In the early afternoon of Nov. 21, Fairfax stock was trading at $273.54 a share, down 1.35% from the previous close.
(By David Dankwa, senior associate editor, BestWeek: David.Dankwa@ambest.com)
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